Can Some Creditors Declare That Accumulated Debt Is Not Permitted to Be Covered by Bankruptcy Filing?

Interviewer: Do credit card companies have any hard or fast rule or law that protects them at all from being involved in bankruptcy filing and the same goes for payday loan companies and bank loans?

There Is Typically a Four Month Window Where Charges Are Scrutinized

Vance: It's a timing factor. Usually there's a four month window where the creditors really scrutinize what charges were made. Did they get the loan within the four months or did they charge something within the four months?

You've got to really look at the usage that the debtor had as far as getting a loan or charging to credit cards because a creditor could object to the debt amount accrued in that four month period from being discharged to bankruptcy under an abuse statute.

They could claim that they knew that they were getting ready to file bankruptcy, and they ran up the credit card debt or they took the cash advance or they got the loan. It's a timing issue.

A Chapter 7 Bankruptcy Has No Debt Limit; a Chapter 13 Bankruptcy has a Debt Limit

Interviewer: Is it possible to have too much debt for you to file a Chapter 7 bankruptcy?

Vance: No, there is no limit on debt to file a Chapter 7. Now there is a limit on Chapter 13. A debtor can't have more than $350,000 of unsecured debt. It changes all the time. They can't have more than 1.2 million of secured debt. If they have over those amounts, and they don't want to do a Chapter 7, then they would have to go into a Chapter 11, a personal Chapter 11, and I don't do those.

They're very expensive, they're very labor intensive, and I don't have time to do them. I usually refer those out to some other law firm that does Chapter 11 work. It's very specialized.

What Entities Typically Opt for a Chapter 11 Bankruptcy?

Interviewer: What would Chapter 11 be good for?

Vance: Most Chapter 11s that are filed are for corporations. It is a reorganization, but the personal Chapter 11, as I say, is for individuals who have too much debt to file a Chapter 13, and then they don't want to file a Chapter 7 because there is no limit on Chapter 7.

Is It Possible to Convert Your Chapter 13 Bankruptcy into a Chapter 7 Bankruptcy?

Interviewer: Have you ever converted someone from a Chapter 13 to a 7, and if so, why?

Vance: Yes, I have and I do it quite often. Let's say that they file a Chapter 13 to save their house, and after several months or a year they're still falling behind on the house payments, so they say, "Well, look, we know we just can't continue doing this", so then they convert it over to a Chapter 7 and walk away from the house.

As another example, let's say that your income has been reduced or if you're a married couple, and the husband and wife has lost their job. If their income has been reduced then I will probably convert them over to a Chapter 7.